Why 90% of Startups Fail and How You Can Succeed.

Byit@simplefox.de

Drawing from my experience as CEO of simplefox GmbH, an IT and software company based in Kiel specializing in web and mobile development for leading enterprises, SMEs, and startups worldwide, I have encountered a diverse range of startups across various industries and am regularly presented with new ideas and concepts for potential developments. 

Our focus lies on web platforms, e-commerce stores, business websites, Software as a Service (SaaS) models, and mobile applications, areas in which we have specialized our development efforts over recent years. As a technical service provider, we implement such ideas and concepts in close collaboration with founding teams. I would like to share the insights gained from these experiences with you here. 

1. Business Idea

Frequently, I receive business ideas from founders that are either veiled or only partially disclosed, as they are treated as strictly confidential – this is often the initial misstep. The idea itself holds no inherent value, and you can be quite certain that this exact idea has already existed numerous times and, with high probability, has been pursued further.
From the initial concept to implementation and ultimately to a functional product, it is a long journey fraught with many obstacles, and merely possessing the idea does not mean you have overcome any of these hurdles. 

Tip #1
Do not hinder yourself and your project by keeping your idea or concept concealed. Comprehensive feedback and well-founded criticism are fundamental for evaluating and refining your business idea – discuss it openly and gather crucial experiences and opinions from others to evaluate and enhance your concept.

2. Concept / Business Plan

Once the idea for a potential startup is established, the conceptualization phase begins. At this juncture, startups diverge significantly. Some are highly committed to developing a comprehensive concept, while others still lack a business plan and may not require one in written form. Fundamentally, it is always crucial to work structurally and document the essential considerations and key figures of one's idea. During this process, the team engages more intensely with the project, often uncovering critical considerations for the first time.

I hold little regard for a business plan elaborated down to the last detail, as it is highly probable that it will be overturned within just a few months. 

Tip #2 
Work with a concept, structure your considerations, and calculate as optimally as possible. Do not forget to remain agile and adapt to various scenarios, as it is highly probable that events will unfold differently than initially planned. 

Key Questions for Developing and Elaborating Your Business Plan

To thoroughly scrutinize your startup and business idea, I recommend answering the following questions in detail. Should significant challenges arise during this process, it would be an opportune moment to rationally re-evaluate the idea.

  1. What stage (phase) is your startup currently in? (You can find more about the different phases here.)
  2. Has your startup achieved specific milestones, irrespective of revenue or profit? For instance, are there already customers or users? Are there existing contracts with employees or suppliers?
  3. What primary business model do you pursue?
  4. Which fundamental target audience is your product or service intended to serve? 
  5. What, in your opinion, is the unique selling proposition of your product or service?
  6. What is the primary problem faced by customers who might find your product or service appealing?
  7. How does your startup solve this problem? 
  8. Are there already known competitors, or are you a market pioneer?
  9. What is your estimated annual percentage growth for your target market over the next five years?
  10. In which market will you primarily sell your product or service initially?
  11. How much capital does your startup require?
  12. How many investors have already invested in the startup and hold equity in the company, or will it be feasible without investors?
  13. How will the raised capital primarily be utilized?

3. Founders & Team Composition

The most critical factor, possessing the greatest potential for conflict, is the composition of the founding team. A significant portion of future success rates can be determined during the analysis of the founding team and the assessment of their competency areas, and it is precisely at this juncture that projects often fail before they even gain momentum. A typical example: “We have an innovative idea for a new app; currently, our team consists of four people: two business administration students, a law graduate, and someone for sales and marketing… now we are looking for someone to develop the app for us.”

Without precisely evaluating the diverse competencies, this composition of the founding team is highly unlikely to achieve monumental success. 

It is often assumed that the founding team must cover all competency areas; however, this is a misconception and virtually impossible to achieve.

Tip #3
Analyze your team. Successful founding teams typically consist of no more than two founders with outstanding areas of expertise and an inseparable, harmonious collaboration. 

4. Motivation / Commitment / Perseverance

Motivation and commitment are essential for a successful startup. Too often, the notion arises that a successful startup can be launched as a side project, perhaps even alongside a regular 40-hour work week. This is not the case; it demands absolute dedication and full commitment.

If this level of commitment is not feasible due to time constraints and financial circumstances, then this would again be a point at which the startup dream should ideally not be pursued further.

Furthermore, it is commonly stated that a startup, on average, requires at least five years to establish sufficient stability or to generate enough revenue to sustain the company, including all employees and fixed costs. I can only confirm this, even though I initially would not have believed it. 

The development of a market-ready product requires time, in addition to building networks, establishing the brand, and acquiring a sufficient customer base. 

For many very large startups, investors and annual funding rounds play a crucial role. In the digital age, the necessary market penetration can often only be achieved through substantial marketing investments. Therefore, the strategy behind your business should be meticulously considered in advance.

Tip #4
A successful business does not emerge as a side project. Only through unwavering commitment, sustained perseverance, and continuous optimization over many years can a stable company be built around a product. 

5. The Budget – What is Required?

There is hardly any aspect more challenging for a startup to calculate initially. Particularly in web and mobile development, expertise and experience are often lacking to clarify essential budget considerations upfront. 

From conception to the first functional product (MVP), numerous milestones and obstacles necessitate detailed calculation. It is therefore crucial to have experts in this field within your team or as professional and reliable consultants to optimally assess budget requirements in advance.

What is the actual cost of a mobile app or a business website? 

As you might expect, this always depends on your requirements catalog and your technological aspirations. In web and app development, products can be developed to suit any budget. 

Tip #5
Here are the most important points for budget assessment:

  1. First, develop an in-house prototype.

This process aids in thoroughly understanding your product.

  1. Focus on the MVP (Minimum Viable Product) 

It is crucial to engage with customers as quickly as possible and launch with the first market-ready version of your product. 

  1. In addition to the development budget, allocate sufficient funds for the roll-out.

Caution! You should anticipate an additional 2-3 times the budget you have already allocated for development, as this is significantly underestimated in 80% of cases.

  1. Start with a free version that already includes all essential functionalities.

For several years, this has been by far the most successful model and the only opportunity to generate sufficient interest in your product. Premium subscription models based on premium features enable you to convert users into paying customers eventually.

6. Seeking Investors

Finding suitable financiers is a challenging endeavor and, unfortunately, almost indispensable for successful app or web development today. Budget is required in this sector, and even if, for instance, a web platform or mobile app can be developed internally, bottlenecks often arise during roll-out and marketing. Without paid advertising, you will have little chance of making your product public today. I have personally witnessed this scenario countless times, despite careful preliminary discussions. The development budget was available, and an initial market-ready product emerged, but subsequently, liquidity for proper marketing and distribution was lacking. However, be advised: the search for investors must be approached with prudence.

Tip #6
Here are the most important tips for seeking investors:

  1. Investors do not invest in an idea, but in a functional product. Therefore, do not harbor excessive expectations of finding suitable investors solely based on your business plan. While successes can occur in such instances, these “cooperations” should be approached with extreme caution.
  2. Do not undervalue yourself prematurely for a sum you cannot accurately assess at that point. A million sounds substantial, doesn't it? Would you relinquish over 50% of your shares for that?
  3. Not only the investment sum, but also the decision-making power that often accompanies it, plays a crucial role. Significant conflicts can arise here, which can be avoided through the careful selection of appropriate investors. Rapid cash flow should not be the sole factor; the investor's character and vision also play a vital role in future collaboration.

Epilogue

I hope this article advances your understanding and assists you in avoiding initial pitfalls, particularly in successfully navigating the early milestones. Should you require advice or assistance, please feel free to contact us. We have successfully completed all the aforementioned steps ourselves in recent years and are currently in our fifth year since establishment.